Blog Entries from 01/2012

Operational due diligence has become a hot topic that continues to gain importance and attention throughout the alternative investment industry. Over the past few years, as regulations have changed and investors increasingly seek transparency, funds are spending more time than ever preparing for the due diligence process.

It is no surprise that the investment industry landscape is becoming more and more competitive. As this trend continues, investors are raising their expectations and looking towards funds that display the highest levels in operational excellence. One important way to ensure your firm meets these high standards is to complete a due diligence questionnaire (DDQ) that can be shared with potential investors.

A comprehensive DDQ covers a wide range of topics, from assets under management to audited financial statements and investment strategies. One major area of focus is the fund’s IT and accompanying security policies and procedures. At Eze Castle, we frequently assist our hedge fund clients in completing DDQ questions on technology, and we often see the same types of questions popping up. So, to help you get started, we have compiled the following list of some frequently asked DDQ questions.

When it comes to clouds we have Private, Public and Hybrid as the primary flavors. Private Clouds have the privilege of being segmented further but more on that in a minute.

According to Search Cloud Computing, a Private Cloud (also called internal cloud or corporate cloud) is a term for a proprietary computing architecture that provides hosted services to a limited number of people behind a firewall.

Attributes of a Private Cloud, versus a Public Cloud, include providing a hedge fund firm more control over their data, excellent client service/response times, and greater integration with hedge fund vertical specific applications such as order management or portfolio management systems.

Hedge funds and alternative investment firms rely on a host of financial applications for their day-to-day operations: order and execution management, portfolio management and accounting, risk management, and more. And with the ability to host these applications in the cloud, firms are able to leverage all of the typical benefits associated with cloud-based services including reduced costs, increased flexibility and scalability and added resiliency and redundancy.

While there are countless applications in the marketplace designed to meet the unique needs of investment management firms, we thought we’d highlight a few here that our hedge fund clients use regularly to support their trading operations.

Order/Execution Management

Via an OMS solution, hedge fund firms have the ability to review performance, exposure and risk profiles in real time, monitor pre- and post- trade compliance results and enhance audit trails on a daily basis.

Earlier this month BlackBerry introduced its new BlackBerry 7.1 OS that adds new features including mobile hotspot capabilities, BlackBerry Tag and Wi-Fi calling. This week I updated my device and thought I’d share my experiences with the new features.

Mobile Hotspot
The ability to turn my BlackBerry into a mobile hotspot got my attention after some recent trips to NYC where I enjoyed the snail-pace of Acela’s free Wi-Fi. The Mobile Hotspot feature is found under ‘managed connections’ and allows you to connect up to five Wi-Fi devices at once.

BlackBerry warns that additional charges might apply for Mobile Hotspot use and that during phone calls Internet traffic to and from connected devices will be suspended until the call ends.

The industry came a long way in 2011 in terms of learning about the cloud – what it is, how it works and more. But believe it or not, there is more to be learned. In 2012, we expect conversations to go to a deeper level and focus on topics such as cloud security, operational best practices within the cloud and cloud technology specifics.

I had the pleasure of joining my colleague, Vinod Paul (managing director here at Eze Castle Integration), on a panel yesterday about disaster recovery at HFBOA’s Optimizing Hedge Fund Business Operations Conference in New York.

Titled ‘Disaster Recovery: An ounce of prevention is worth a pound of cure,’ we covered a range of topics with the overarching theme being that there is no excuse for a hedge fund not to have disaster recovery in place. To quote one panelist, “Nobody Gets a Pass” – including service providers.

As we mentioned in our recent “Trend Watch” article, the Bring Your Own Device (BYOD) movement is gaining popularity among organizations of all types and sizes. Some companies are already seeing significant benefits as a result of implementing BYOD programs, while others have been hesitant to get onboard.

BYOD refers to the so-called “consumerization of IT” trend that has emerged, in which the culture of enterprise IT is shifting such that the end user is now the one who has cutting-edge technologies first, as opposed to the organization. As a result of this trend (which is frequently attributed to the advent of such Apple products as the iPhone and iPad), individuals are now starting to prefer using their personal devices in place of company-issued products.

Some organizations have begun to embrace these preferences and have implemented BYOD programs to facilitate the use of employees’ personal mobile devices for business use. So far, many of these firms have reported positive results, although lingering concerns remain. Let’s take a look at some of the pros and cons of introducing a BYOD program at your organization.

The start of a new year is the perfect time to reflect on the previous year’s accomplishments (and perhaps shortcomings) and consider areas for improvement. While many of us are striving to cut back on the sweets, drop a bad habit or spend more time with friends and family, we got to thinking about resolutions that hedge funds and alternative investment firms should make in 2012.

In this spirit, I spoke with some internal experts here at Eze Castle to gain their thoughts on a few areas in which funds could consider making enhancements. Check out our list of the top five resolutions every hedge fund should make:

Resolution #1: Investigate the Cloud.
Cloud computing was certainly a hot topic in the investment industry in 2011. This year, the conversation is getting deeper and more technical as fund managers seek to gain a more thorough understanding of this technology and consider implementing it within their firms. Whether you are a startup fund preparing to launch this year, or an established firm looking to improve efficiencies and reduce costs, the cloud provides real opportunities for improvements in 2012. Advantages include increased flexibility and scalability, less required maintenance and reduced expenditures. There are also challenges associated with cloud computing, such as privacy and data security concerns. Resolve to learn more about the cloud in 2012, as many of your competitors are likely doing the same.

Happy New Year! We hope your 2012 is off to a great start. Whether you’re launching a new fund this year or ramping up your existing firm, you should (and probably do) know how important your firm’s technology is and will be to your success. More so than ever, technology plays a critical role for hedge funds and investment firms, allowing them to streamline processes and communication, get a leg up on competitors in the marketplace and provide investors with the utmost confidence.

One of your first technology decisions of the year is your most important one: do you want your fund to operate on a traditional, on-premise technology infrastructure or utilize the cloud? This decision will affect many of your other technology choices, notably the type of office hardware and connectivity you will require, so we urge you to do your due diligence and select the option that best suits your firm’s needs.

Once you’ve made your infrastructure selection, there is a seemingly endless list of additional technology requirements for your firm. Luckily, I’ve whittled them down here to focus on some top technology priorities for you to focus on as you enter 2012.